Implied Dollar shorts pile on

Latest CFTC Release Dated July 3rd, 2006:

· Dollar Implied Shorts Pile On
· CAD Specs And Commercials Diverge

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US Dollar Index: USD index implied short positioning increased significantly from the prior week. Implieds are now 93,693 short as opposed to 52,795 short the week before. The increase in shorts is due to the recent decline in the dollar and the trend towards a weaker dollar should continue until positioning is extreme to the short side. Positioning is now at the 72nd percentile as an absolute value when measured against the last 26 weeks.

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EUR: Specs increased longs for the second week in a row. Longs increased 3,875 to 68,545 and the situation is similar to that of the USD index. With positioning at the 76th percentile, euro strength could continue until we reach the 100th percentile — representing positioning (mania) and a reversal opportunity.

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GBP: A week after dumping longs, specs added 5,292 to remain long for the 12th week in a row. This suggests that the Cable rally from 1.8090 is not yet finished. Open interest is little changed at 78,658 from the previous week’s 78,592.

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CHF: CHF traders completely reversed the prior week’s action, cutting shorts by 11,575 a week after adding 10,417 to shorts. The position is now net short just 4,314. Specs are very close to flipping, which often provides long term confirmation of a trend in USD/CHF. In this instance, a flip to long CHF would imply that the path of least resistance in USD/CHF is down.

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JPY: Yen specs cut JPY shorts by 11,663 after last week’s JPY gains. Speculative positioning went from 35,572 short to 23,909 short. A continued liquidation of JPY shorts would lead to additional JPY gains and ultimately a flip in speculative positioning (short to long). This would favor a longer term JPY bullish scenario.

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CAD: CAD traders increased longs by 6,138 and are now long 36,447. The difference between speculative and commercial positioning is now the largest since 3/7/2006 — which is the same week that USD/CAD made a low at 1.1297 a gained over the next month to 1.1771. A large difference in positioning between specs and commercials often mark extremes and precede shifts in market sentiment. As such, the favored view is CAD bearish (USD/CAD bullish).

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AUD: Specs remained long a week after flipping to long. However, the bias since the May 16th report has been AUD bearish since it was then that positioning was extreme to the long side and that the liquidation of longs would lead to a falling Australian dollar. That has played out and the willingness of specs to buy here could lead to a bounce before the larger downward move continues.